More intelligence please, says Patel

Vancouver-based CFO of Crystal Decisions, the business intelligence software vendor sees big growth in Asia.

What is the background to the business intelligence software industry?

Since the 1970s large companies have used software systems to do their transactional processing. For example, their ERP system does all the accounting within the company and inventory management. What then happens after the transaction is put into the system? Well, a software company such as Oracle will sell the company a database, and all of the records pertaining to that particular transaction go into the database.

So if you think about a food company, for example. They are inputing all their orders from different grocery stores around a given region and thus have a ton of data in that database. A bunch of that is really useful to track what customers want, when they sell more and less and so forth.

Multiply that by all the other software systems companies have put in place, such as customer relationship management software – which deals with everything from complaints lodged at call centres to logging every time a saleperson calls on a client. There's a huge amount of data. So any question you have about your customer base is probably in that database.

Oracle and Microsoft are the two dominant database vendors in the world and there are hundreds of billions of dollars that have been spent on these databases and systems all around the world in the last two decades.

The problem is that the systems were designed to process transactions efficiently and increase productivity through smaller headcounts. However, they are not designed to fish the information back out. That was a fundamental design flaw.

Business intelligence is the software business that has grown up around helping companies to pull that stuff back out to use it for better decisionmaking. There are so many answers locked away in company databases and it is a problem that hasn't been solved by the large vendors of ERP and CRM systems. So by Gartner's estimate, business intelligence software has grown into a $4 billion industry.

Our main product is Crystal Reports and that is probably one of the best brands and an industry standard. Basically it pulls stuff out of the databases and gives it to the folks in the organization that need it. It formats information in the way you want to see it and slices and dices it. It helps everyone from the guy in the warehouse all the way up to the CEO. It gives the CEO a corporate dashboard to look at how their company is doing.

So while the software industry has sagged in the past couple of years, our industry has continued to do well – growing 5-10% year on year.

Over the last 10 quarters we've grown consistently, which really no other software company has.

So how does the software work?

It cuts across a lot of databases. A Fortune 500 company will have around 400 transactional applications, all by different vendors, that don't talk to each other. Each one of them will have a different database with a different protocol. It may be operating on as many as a dozen different operating systems such as Unix, Linux etcetera. What our stuff does is to provide a corporate umbrella for all that data, and presents it.

We can pull from pretty much any data source out there. There may be a few we can't access, but not many.

The company was founded in 1984, and we have shipped 14 million seats [people using the software] since 1988. We have done this partly through partnerships with big software companies such as Microsoft and SAP.

Is it mostly a US business?

We are mostly a North American business. We started in Vancouver and most of our revenues come from North America. One of the reasons I am in Hong Kong is because we now see a lot of growth coming from other geographies such as Asia. Asia is already one of our fastest growth areas.

Have you tended to focus on banks in Asia?

We tend to do well with companies that are fairly IT-intensive. Financial institutions are probably the number one ‘vertical' segment for us. After that, telecoms companies are still surprisingly strong clients in Asia. Then comes manufacturing.

How much growth have you seen in Asia?

It's been pretty phenomenal. In the last two quarters we've seen 50% and 35% year on year growth respectively. We are now looking at what other investments we should make in Asia. When something is growing at more than 40% you should throw some money at it.

Any particular reason for this growth?

The software we offer clients can help companies build their revenues, help their customer service or with cost management.

Are the products designed with the internet in mind?

Our company has gone through a number of evolutions. The biggest was rebuilding our products from the ground up to cater for the internet. Our web-based product came out in 2000. In the preceding two years we weren't doing too well, but when the web-based product came out it really hit a sweet spot in the market.

Where do you do your software design? Do you do any in India?

We don't right now. We are looking at different locations. But the bulk of our R&D facilities are in Vancouver, although we also have an R&D facility in Ipswich in the UK. But we are looking at other options.

So in terms of your revenue, you think Asia could make up as much as 20% over the coming years?

I believe that to be a definite possibility. I see the growth here as phenomenal. The needs are big, and the market is a little less developed. We've got a great team over here building the business under Lee Boon Huat.

Is software piracy an issue for you in Asia?

As with all software companies, this is an issue. It's one of our considerations when we look at which markets to develop and when.

How does that statement fit into your China strategy?

It's one of the factors we have to look at. There are a lot of positives with China, but everything else being equal, the piracy issue is a big negative for us in China.

So is the business mostly focused on Hong Kong and Singapore?

They are the key markets. But growth in the neighbouring countries such as Korea and Taiwan is high, although growing from a smaller base.

Is there potential competition from home-grown Asian companies, from India for example, that design similar software?

Historically there have been a lot of competitors in our space, doing knock offs of our product in the early 90s. Systematically our product has gained capabilities and we have been able to push most of the competition out of the market. We have effectively become the standard. And we are adding functionality that users want.

The technology we employ is not easy to do. There is thus always potential for competition, and for a company to come out with something groundbreaking, but we don't see that on the horizon right now.

What's the revenue model?

Like most software companies, we sell perpetual licenses that you pay upfront for. On an annual basis we charge a fee for technical support. That is a real strength of ours. Plus there is a fee for maintenance and upgrade advantage. That's an insurance policy that ensures you are looped into our whole product stream.

How big a company do you have to be to make your software a viable proposition?

We sell to companies of every size. Our entry level product is $400 a copy, all the way up to what we call an enterprise levels product such as Crystal Enterprise that will cost around $1 million.

A lot of companies have wasted a lot of money on software in the past five years. In order to close $1 million sales, how do you prove to companies they will gain enough to justify the investment?

Your comment about money being wasted on software is a profound one because it drives a lot of behaviour these days. In the 1990s a lot of companies were buying transactional systems that cost upwards of $10 million. They put those things in, and discovered they couldn't get the information out. Then a lot was spent on Y2K. And the next thing was the e-business revolution. Each one of those waves increased the amount of data. IDC studies say that data is doubling every 9-18 months in organizations.

Companies are now asking, how do I get a return on all the money I sunk into this stuff. The nice part of the story for us is that for a relatively small incremental investment on top, you can get the value back out. So we are selling a return on investment story. It is very compelling. And when you talk to customers who have been using the stuff, and see what it can do, it almost sells itself.

Our existing customers give us references, and these companies include names such as Kraft Foods, Lehman Brothers, Aetna Insurance, Ford, Toyota. Here in Asia we have customers such as Big Boxx.

The head of IT at one of our customers, Intermountain Healthcare, says that the use of our software saves lives. That's because they get better information sooner, and can act on it. In British Columbia, there's an auto insurer who used our product to analyse accident trends. They discovered that at this one intersection there were all these accidents. So they went to look at it, and discovered the traffic light was so low that people didn't have visibility to it. So they increased the height of the traffic light and the accident rate went down.

So when you have the information, you can make smarter investments.

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